Economic Growth and Development Instructor: Xi Wang

Transcription

1 23th June, 2016 Economic Growth and Development Instructor: Xi Wang

2 Economic Development: Before and After Industrial Revolution why distance between 1,000,000 and 100,000 is the same as distance between 100,000 and 10,000? Or is there any transfom can make it?

3 Economic Development: Before and After Industrial Revolution Japan call their as lost twenty years Emm, China has lost nearly 700 years since 1300 what happens here?

4 Economic Development: Before and After Industrial Revolution The Renaissance In the 17th and 18th centuries, scientists increasingly sought to formulate knowledge in terms of laws of nature. what happens here? ?

5 Economic Development: Before and After Industrial Revolution Spain Before 1588 Age of Discovery Only? The Renaissance what happens here? ?

6 Why we are using GDP p.c? Spain Before 1588 Population changes what happens here? ?

7 Economic Development: Before and After Industrial Revolution Growth in GDP per capita is exponential

8 Economic Development: Before and After Industrial Revolution

9 Economic Development: Before and After Industrial Revolution

10 Economic Development: Before and After Industrial Revolution

11 Outline Does Real GDP matters?

12 Real GDP matters

13 Real GDP matters

14 Real GDP matters Penicillin

15 Real GDP matters

16 Pattern Economic Growth(Growth of Real GDP per capita) matters Economy grows in different manner after 1800S Different Countries have different growth pattern after 1800S; Gap between countries remains U.S, the United Kingdom, France, and German demonstratesustained growth between 1820 and 2010 in the sense that there is a positive and relatively steady growth rate in every 50-year period, and the growth rate for the entire period issignificantly positive for these countries.

17 How can a country keep growing? Recall the production function Y A F( K, L) Y, real GDP A, Technology K, stock of physical capital L, stock of human capital Any one of A, K, L grows can cause Growth of GDP

18 How can a country keep growing, K Economic growth, or simply growth, refers to the increase in GDP per capita of an economy. The physical capital stock (and therefore GDP) can be increased investment, a process also known as physical capital accumulation. by Y Recall from GDP identity formula: Y C C I G G I

19 How can a country keep growing, K Saving = Investment Interpreted differently, all the resources households decide to save will be allocated to firms that will use them for investment (for example, by banks that will take money deposited by households and lend it to firms for investment). Recall the motivation of Saving?

20 Can K bring sustained growth? Saving rate is kind of constant Diminishing return of Capital With increasing level of physical capital, the extra amount of Real gdp brought by one more unit of capital is decreasing!

21 How about L? Population growth is also kind of constant Diminishing return of labor Oh, If you still remember, we can upgrade our human capital! By schooling! But please, note that more schooling, less working time And there is a upbound for this upgrade

22 Technology is the only hope Summary We cannot achieve sustained growth of about percent a year just by continuously increasing the educational achievement of the workforce or accumulating physical capital Technological change is the process of new technologies and new goods and services being invented, introduced, and used in the economy, enabling the economy to achieve a higher level of GDP for given levels of its factors of production, physical capital stock, and total efficiency units of labor.

23 Technology, example Same goods, but lower cost to produce, bulb More goods,i.e Auto Or, let's put them in this way, maybe the goods category remain the same, but we have better and better goods: Horse----Auto Telegraph----phone-----Cell phone smart Cell phone

24 Technology But I cannot imagine a techlonogy similar to Virtual reality. Sustained Growth of Tech Causes Sustained Econ Growth Test: Before The first industrial revolution, is there any Sunstained Techlonogy growth? Though the world before 1800 was certainly not stagnant, it did not experience the type of sustained growth

25 From Malthusian to Solow Recall the real gdp p.c before 1800? Why did the real gdp p.c stay stable? Agriculture is the main industry then. But the main input of agriculture production, land is constant Or say, K is constant. With no improvement in Technology, Imagine, how many people we need to take 1 acre arable land?

26 From Malthusian to Solow At most, 5 people. What if you put 6 people? 0 marginal Product Given this background After a plague or war, population is low. Hence, marginal product of labor is high. Put labor to product, GDP grow, GDP is relative high. then Birth rate goes up to a degree(why?). Population will have a upper bound, why? More people, less margimal product. And MP eventually goes to 0. Aggregate income (GDP) could not grow faster than the population, Then GDP. p.c goes down, then low GDP p.c -----famines or wars that would kill a large fraction of the population. Or some extreme event happens

27 From Malthusian to Solow WW I Nazi Germany began

28 From Malthusian to Solow WW I Nazi Germany began

29 The Industrial Revolution Industrial Revolution was a gradual process rather than a short period of rapid disruption. It is the term coined to designate the arrival of many new machines and methods of production in Britain, starting in textile manufacturing and thereafter spreading into other sectors. Matters? Almost all of the drugs that save hundreds of millions of lives every year around the world are invented and made available to us over the last 250 years.